Why Work So Hard Building a Fortune and Not Protect It?

[Happy Friday! Got a fresh article from long-time reader, Gene Roberts, who you might recall from previous posts, Zen and the Art of Couples Budgeting and Dream as if you’ll live forever, live as if you’ll die today. Both of which ironically allude to motorcycles which plays a big role in today’s story. I’ll admit it IS one of those “insurance reminder” type articles, but I guarantee you won’t be bored by it. And in fact, you might even learn something today! *Gasp* Take it away, Gene…]

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I’ve read the odd financial blog (flog?) or two over the last few years, and against all odds many interesting and useful ideas have managed to seep through my thick skull. Some articles have even moved me to take action in some facet of my finances!

There have been tons of pieces written about how to make more money. And plenty on how to change your lifestyle to consume less to be able to save even more on the same income. I’ve also read many suggestions on good ways to maximize your return on all that extra money you just saved.

It seems like many of the pieces I’ve read seek to increase your net worth in one way or another. That is a fine goal to be sure. But I don’t recall coming across many that discuss ways to hold onto or protect your assets. Why would anyone work so hard to amass a fortune, only to leave it vulnerable to being taken away?

How to Prevent an Indemnity Crisis

Most of us are familiar with the term “Identity Crisis”. For which, Google provides the following definition:

“A period of uncertainty and confusion in which a person’s sense of identity becomes insecure, typically due to a change in their expected aims or role in society.”

Here’s my similar definition of an “Indemnity Crisis”:

“A period of uncertainty and confusion in which a person’s cents (and dollars) become insecure, typically due to a change in their health and/or employment status for which they are ill-prepared.”

Indemnity is awesome. Who doesn’t like being protected from dire consequences when bad things in life happen to us? We indemnify ourselves against some of that bad juju by purchasing insurance.

Some situations you can’t do much to protect yourself from. Like your girlfriend’s college roommate, let’s say, transferring a phone call from her angry mother to YOUR dorm room at 6am, you know, because that’s where her daughter was. (Awkward!)

But there are many other situations where you can mitigate the financial consequences of life’s less-than-forgiving moments before they threaten to bankrupt you.

Some of the things Lloyd’s of London has insured over the years would surprise and/or confuse you. From Betty Grable’s gorgeous gams to the tip of Jimmy Durante’s humongous honker, it seems no body part is off-limits if it contributes to a celebrity’s value. Also including: Gene Simmons’s tongue, Liberace’s hands, Bruce Springsteen’s voice, Dolly Parton’s rather impressive endowments, and Tom Jones’ chest hair – eww.

For us mere mortals, the insurance choices are somewhat more mundane. Everyone is pretty much up on home, auto, and life insurance, but less popular are renter’s insurance, short-term disability, and umbrella policies. There are also a slew of specialty policies that can be useful if you have risk exposure in their niche markets. (Editor’s Note: I’m still waiting one day for Financial Blogger’s Insurance – come on people! :))

Just because a particular type of insurance is voluntary (unlike auto, health, and homeowner’s if you have a mortgage) doesn’t mean you should pass it up to save a couple of bucks. You just aren’t generally forced to carry coverage that will only hurt you if you don’t.

Consider that while 95% of home owners carry homeowner’s insurance, only 40% of renters carry rental insurance. Granted, renters aren’t responsible for most damage to their apartment itself (assuming they didn’t cause it). But they can still get burglarized or have the upstairs apartment flood out their apartment and damage or destroy everything they own. Who’s going to pay for that carnage?

You, if you aren’t insured.

Tragically, a few years ago this happened to a co-worker of mine. He didn’t have any renter’s insurance when his apartment complex burned to the ground. He and his wife lost everything they owned and were temporarily homeless (weeks before Christmas, no less). Without any insurance it was very difficult to get back to where he was financially before the fire.

Even with insurance it would still be awful. But at least then he would have been able to replace most of his belongings straight away.

Those of us that have started to accumulate significant assets (more likely than not, if you are reading a “flog”) can come under attack by those that want them. Do you want to keep from losing the results of your hard work? Better look into getting a good umbrella policy before someone “trips” and injures themselves on your property or it could all be gone.

An umbrella policy could be a lifesaver, even if you don’t currently have many assets to protect. You could still get a big judgement against you from an accident or injury you caused whether you’re wealthy or not.

(Editors Note: We picked up umbrella insurance for the first time ourselves a few years ago when our wealth started growing, along with our family. For reference we pay $212.91 a year for $1,000,000 worth of coverage which comes out to about $18/mo. Annoying, but not as annoying if we have to activate it!)

I’m not an insurance salesman and don’t claim to know about all the different ways to insure yourself against risk. But I did have a major event happen last year that made me glad I covered my rear end.

Short-Term Disability and “Search and Rescue” Policies

I’ve ridden motorcycles for decades. I’ve taken advanced classes to help hone my riding skills. I have over 100,000 miles riding experience with no accidents (“had” now, I suppose) and feel that I am a safe rider (still). But that perfect record can vanish in an instant.

In general I am not overly worried when I ride. I know that anything can happen, but I have good health insurance, my bike is insured, I wear all the protective gear, and I am a careful rider.

But that would have resulted in a very bad outcome for me financially. Thankfully, I did consider some more “What ifs”: “What if I can’t work for months after an accident?”, “What if that accident happens on the other side of the country, how do I get home?”

So in addition to my health and motorcycle insurance, I added short-term disability from work and a “search and rescue” policy.

What’s a search and rescue policy? I’m glad you asked. Search and rescue policies (or travel insurance depending on who you buy it from) are offered to owners of GPS tracker systems to defray costs of search and rescue, some medical, and repatriation (returning you to your home).

It’s not something you would normally think of. But if you do anything dangerous out of cell phone coverage (especially alone), you should consider buying a tracker and getting the policy. If the dude in 127 hours had a tracker on him, his story probably wouldn’t have been made into a movie (and would still be able to clap).

The Motorcycle Accident That Put It All Into Perspective

One beautiful day in April I left for a weekend motorcycle trip out of state with some friends.

While following a car around a bend, I see that there is an accident about a half mile ahead. I cut the throttle and coasted while I tried to see what impact it might have to our ride. In that moment I was looking, the driver of the car ahead of me decided to break rapidly even though we were more than a quarter of a mile away from the site.

When I realized how fast the car had slowed, I grabbed just a little too much break too quickly and locked up my front tire. My bike slid around from side to side as I recovered from the skid. I was able to keep the bike upright and avoid hitting anything, while simultaneously avoiding anything hitting me. Not a scratch on the bike, yay!

Unfortunately, as the bike was gyrating my left foot came into hard contact with the pavement. Enough energy was transferred into my leg that it shattered the top of my tibia without it even coming into contact with the road. Freak accident, what can you do?

The pain was immediate. But I was able to get the bike over to the side of the road and stopped safely. I hit the kill switch to shut off the engine, and one of my friends came over to put the kickstand down for me. I was still sitting on the bike when the EMT’s got to me.

Fast-forward a couple of days, and I am stuck in a hospital bed with a monstrosity of metal poles screwed through my leg into my lower tibia and upper femur holding my leg in a fixed position. I’m doped up, but still in a lot of pain.

The trip is over, so my friends had to leave to go back home and I am all on my own hundreds of miles away from my friends and family.

I was OK for a couple of days, but it began getting depressing fast. Though I was fine, my health insurance wouldn’t pay to send me back home where I had a support system. I was in a quality hospital and the staff were taking good care of me. But I was going to be sent to a local skilled nursing facility until the swelling went down enough to do the reconstruction. Then I would still have to stay until I was able to take a commercial flight home.

I would have been stuck there for over a month on my own with no one to look out for me … had it not been for that search and rescue policy I bought for exactly these situations.

Given my medical state, the repatriation clause in that policy applied and I was able to catch a ride home on a private Lear Jet that was set up to be a full ICU (overkill for my condition), including a staff of 2 ICU nurses to watch over me in addition to the pilot and co-pilot.

I got back home a week after the accident. It’s difficult to convey just how relieved I was to see my family again. I don’t care how old you are – when you are hurt bad, it is always good to see your mom.

To make a 5-month-long story short: two plates, eleven screws, and a couple of scoops of cadaver bone paste later I was finally back to work.

I’ll still be going to physical therapy for many more months, but I can now walk without a cane most of the time, and I’ll have another surgery in four or five months to have some hardware removed. All things considered, I came out pretty well.

Financially, things are all good. But they could have gone bad.

I could have forgone the short-term disability and saved about $600 from my paycheck

And lost over $20,000 in tax-free benefits

I could have decided against the search and rescue policy and saved $120

And been isolated and injured for a month.

And been on the hook for a $30,000 flight (what one of the nurses told me it cost – a hell of an ROI right there!)

If I didn’t have good health insurance, I’d have owed $150,000 of medical expenses on top

I wouldn’t have been able to pay for the medical flight if I hadn’t had the insurance. So strictly speaking, the policy didn’t technically “save me” that expense. But again, it’s hard to overstate what it meant to be back at home around friends and family.

The short-term disability is another matter entirely. I would have had to come up with over $20K to replace my lost wages. That would have wiped out the majority of my emergency fund and set me back years on my retirement.

The short-term disability only paid out 65-70% of my gross pay, but since it was tax-free (premiums are paid with after-tax dollars, so disability benefits are received tax-free.), it was almost just what I normally took home. So not only did I not have to deplete my savings and push back my retirement date, I was able to still meet all my savings goals for the year. And due to my decreased activity during my convalescence, I saved even more money and was able to buy a new 4K TV at the end. OLED rocks!

The Bottom Line

It’s easy to ignore potential problems like New Orleans did before Katrina hit. They hadn’t had a serious problem in decades, so despite repeated warnings from professionals who knew that they were vulnerable to catastrophe, the elected officials decided that the cost of improvements were too hard of a sell to the residents who would have resisted the extra taxes. But you can only ignore a problem until you can’t anymore – like when you have to start treading water.

Ask yourself, how long can you financially tread water?

The problem is that protecting yourself requires planning and a tolerance for spending money on something that hopefully will never be needed. I saw some of the most amazing trees on the Gulf coast that didn’t bust a sweat when Katrina roared by. But they didn’t grow their roots the second the storm came onto the horizon. They were planted years ago. Decades, even.

The bottom line is this: you have to take a look at where your risks lay now, and take action to protect yourself BEFORE the tragic events strike.

I need to pick up long term disability insurance, and possibly short term as well. It’s been on my radar for years and I’ve never pulled the trigger. My employer doesn’t offer a benefits package so its something I would need to buy on the open market. When I was 15 I was hit by a car and my left tibia and fibia were broke in 2 spots in a triangle shape, with one of the bones sticking out my leg. Thankfully I was less than a 1/4 mile from home. My dad had made comments that I was the only person in the family to ever hit the deductible on our insurance, and the total cost was over 20K 15 years ago. I was on crutches for almost 3 months. Had that happened latter in life, or heck even today that would be a devastating loss. I’d be OK on the medical insurance front, but 3 months of lost wages would be quite the setback. I could financially tread water for around 6 months, but we would have to press pause on our retirement savings and then rebuild our emergency fund.

Gene, that was a brutal experience. I hope you’re on your way to 100% recovery. It’s great that you had the coverage you had, and you do have me thinking. “I don’t recall coming across many that discuss ways to hold onto or protect your assets.” I think that’s because most of us are focused on the debts we have to pay off and the shortfall of the assets we’ve managed to build. I can see benefiting from “umbrella insurance” now – and “search and rescue insurance” when we’re financially free and traveling more. Thanks, and all the best.

What a story! Thank goodness you’re okay and has that additional insurance that enabled you to go home. I tend to want to be covered for just-in-case situations, as well. I have a rental property that is currently in my name and not under and LLC – because of that and our increasing assets, I have a $1M umbrella policy. I gladly pay the premium for peace of mind. Just as you mentioned, you never know when something isn’t going to go your way.

My brother-in-law had a similar freakish motorcycle accident last summer. All things were golden for decades. He’s experienced and always wears the proper gear. But that didn’t stop a deer from jumping out of the bushes and knocking him off his bike at 55 MPH. His leg looked similar to yours and he’s lucky he got away with it. His insurance coverage also helped him and his family get back on track, quickly.

As with most things in life, it’s the “other guy” you can’t control. You can be the world best motorcyclist around, but the driver in front of you got their license from a cereal box. Awesome post on preparing for life’s certain What Ifs.

I’m not sure exactly, I just like the idea :) Maybe protects from hackers or keyboards exploding? Haha… Every year or so I’ll get someone reaching out from an insurance company talking about starting something but doesn’t get much farther out than ideas. There’s probably some businessy insurance that would do the trick but wouldn’t be as cool sounding :)

I now self insure for disability insurance beyond the basic work policy. With a wife with a high income stream potential the risks are reduced. That being said the other types of insurance life, health care, umbrella, and auto are not something I skimp on. I’ve never heard of search and rescue insurance but I tend to use credit cards with included travel insurance.

Gene, thanks for sharing your story. Hope you are on the mend. Can say I’ve ever hear of search and rescue insurance. $212.91 a year for $1,000,000 worth of coverage seems like a no brainier to protect against the unexpected. Thanks for the info.

I know a lot of people are on the fence about non-mandatory insurance. For example, a lot of people don’t get life insurance, especially once they achieve FIRE. I think you should have most insurance options available to you until you’re completely FIRE. At that point maybe it makes sense to drop insurance, but even then I would be very hesitant. I’ve seen the consequences of not having insurance and it SUCKS.

I can certainly see the case for dropping the life insurance once you’re “FIREd”-up.

You would have already saved enough to cover your needs for the rest of you and your spouses lives. In fact, it should go even further since there would be one less mouth to feed in that unfortunate case.

I never even thought/heard of no insurance after FIRE until the other month! It seems to be a hot topic lately all of a sudden….. Still freaks me out thinking about it, but then again I’m pretty far from hitting ER so it’s not top of mind :)

I strongly believe in being well insured, but I certainly don’t like paying for it. I view insurance as a necessary evil. The best you can do is shop around and get the best price you can for the coverage you need.

I just received a quote for an umbrella policy a few days ago. Most of my assets are tied up in retirement accounts that can’t be touched in a lawsuit, but I am a high earner so there is always the possibility of someone going after future earnings. I haven’t yet pulled the trigger on a disability plan. I have a small long term disability plan through work, but nothing to cover the short term. We’d be able to survive as we have dual incomes and enough available funds to tap, but it would for sure through a wrench into early retirement plans.

Gene, that accident sounds (and looks) horrible. I’m so glad you’re doing better and that you had the appropriate insurance. We were fortunate that my wife had long term disability insurance (through her employer) when she had to stop working due to health reasons. That was quite a few years ago and while we thought she’d be able to go back to work, now we’re not so sure. Having that policy in place has been a lifesaver. Thanks for an important reminder about protecting what you have.

Ouch, that’s a heck of an injury. I hope you heal completely and well! What a good decision to get that SAR insurance, most people always assume that the worst or just the Really Bad can’t happen to them.

We’ve got our estate plan and life insurance squared away, so long term disability is next on the list. It’s been a balancing act of making sure we save enough cash for tomorrow, and have enough for premiums against catastrophic level problems further down the road. Becoming crippled enough not to be able to work like I do as a high earner now has always been a possibility so I’ve never assumed that it can’t happen to me. The question is whether I can get out ahead of the problem enough so that if and when it does, will we be ok?

I would add life insurance for a child to this list of should ofs. This is something I never believed in thinking oh just take it out of savings. That is until my 25yr old niece just past away and her funeral came to $14,000. This was not an over the top funeral but was in an expensive cost of living local. Funeral homes no longer do payment plans either. She herself had no money or insurance policy. In the end several family members chipped in to cover it. So when your child or grandchild is born getting a cheap $10,000 life policy will protect you during a time that is beyond difficult to begin with.

Gene, hope you get better each day and can go back to work soon. My son always want have a motorcycle, but I forbid it as it is so accident prone. As a mother, I don’t know when accident may come and am afraid of it, I ask him to refocus his attention to other things or activities that I highly support.

Wow. Hope you get better soon. Thank you for sharing your story. It was hard just to look at that x ray picture, I can’t imagine the pain you were in. Your story was enlightening and educational. I had never heard of search and rescue coverage.

It’s incredible how safely you can behave and still have tragedy hit you so quickly. I had never heard of Search and Rescue Riders. I have renter’s insurance but not short-term disability. I really need to add that, but the debt is getting in the way. My small business has an umbrella policy, but it does not truly extend to most areas of my life.

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I, J. Money, only claim the thoughts from my head. I am not a banker, CPA, money manager or anything else of that sort. Please seek a professional for any "real" advice. More info: privacy & disclosure page